K. Basavarajappa
Vs. Tax Recovery Commissioner, Bangalore & Ors [1996] INSC 1289 (11 October 1996)
A.S.
Anand, S.B. Majmudar S.B. Majmudar, J.
ACT:
HEAD NOTE:
Leave
granted in these Special Leave Petitions.
By
consent of learned advocates of contesting parties the appeals were heard
finally and are being disposed of by this judgment.
A
short question falls for our consideration in these two appeals arising out of
a common judgment or Division bench of the Karnataka High Court in Writ Appeal
No 293 of 1991 connected with Writ Appeal No.721 of 1991 the question is
whether the common appellant in these appeals who was original petitioner no.2
in these Special Leave Petitions had any locus standi to prefer an application
under Rule 60 of the Second Schedule to the Income Tax Act, 1961 for setting
aside the sale of immovable property of the defaulter income tax assessee from
whom he is alleged to have agreed to purchase the said property and which
property was sold in auction by the Income Tax Department in execution of
Certificate of Recovery of lncome Tax issued against the defaulter, owner of
the property.
In
order to answer this question the backdrop facts may be noted at the outset.
One Y.S. Devendra Murthy who was the owner of the property auctioned by the income
Tax Department had committed default in payment of income tax dues assessed
against him for the relevant assessment years. The Tax Recovery Officer under
the Income Tex Act issued notice to him on 3rd September 1973 as per Rule 2 of the Second Schedule
to the Income Tax Act which deals with Procedure for Recovery of Tax. The said
defaulter Shri Y.S, Devendra Murthy entered into an agreement dated 20th
November 1982 with the common appellant to sell his property being agricultural
land being Survey No.20 and part Of Survey no.21 for Rs.2,80,000/- and received
an advance of Rs 1.62,000/-. The Sale
deed was to be executed by said shri Y.S.Devendra Murthy within eight months
which time limit was further extended by five months. The appellant filed a
quit for specific performance of the Agreement to sell on 2nd January 1984
alleging that said Shri Y.S. Devendra murthy had failed to execute the sale
deed pursuant to the agreement. Earlier an ex parte decree was passed in the
said decree was set aside and the proceedings remained pending.
In the
meantime by an order dated aforesaid properties to Y.S. Devendra Murthy and
thereafter proclamation of sale was issued for putting the tax dues of the
defaulter. the Tax recovery officer brought the said attached properties to
sale on 14th march 1988. The third respondent herein was the successful bidder
at the said auction and he became auction purchaser of these properties. thereafter
on 12th April 1988, that is, within thirty days from
the date of the auction sale the appellant filed an application under Rule 60
of the Second Schedule to the Income Tax Act. To the said application was
annexed a letter from the general power of attorney holder of the defaulter Shri
Y.S.Devendra Murthy authorising him to deposit the amount of tax arrears.
The
appellant along with the said application sought to deposit the interest and solatium
at the rate of 5% with costs. The appellant also deposited Rs.3,42,322/- being
the arrears of tax with interest and solatium with costs with the tax recovery
officer on the same day, that is 12th April 1988 He accordingly prayed for
setting aside the auction sale. The tax Recovery officer by his order dated
20th April 1988 rejected by the commissioner of Income Tax, Karnataka II,
Bangalore to confirm the auction sale he had confirmed the auction sale he had
confirmed the auction sale and hence the appellant carried the matter in appeal
before the Tax Recovery commissioner who rejected the said appeal and passed
order dated 13th June 1988. At that stage the appellant along with the general
power of attorney holder of Y.S. Devendra Murthy, named Shri Y.S. Surender
filed a writ petition in the Karnataka High Court challenging the orders of the
Tax Recovery Officer and Tax Recovery Commissioner.
A
learned single Judge of the High Court by his order dated 14th December 1990 allowed the writ petition and
quashed the orders dated 20th
April 1988 passed by
Tax Recovery Officer and dated 13th June 1988
passed by Tax Recovery Commissioner. The learned Single Judge held that the
application moved by the appellant was maintainable under Rule 60 and as he had
in the meantime withdrawn the deposited amount he permitted the general Power
of Attorney holder of Y.S. Devendra Murthy to make deposit within the weeks and
directed the Tax Recovery Officer to deal with the matter in accordance with
law. An amount of Rs. 4,45,783/- was accordingly deposited with the Tax
Recovery Officer. The aforesaid order of the learned Single Judge was
challenged by the Tax Recovery Commissioner. Karnataka II., Bangalore and Tax
Recovery Officer by way of Writ Appeal No.293 of 1991 while respondent no. 3
preferred Writ Appeal No.72I of 1991 against the very judgment and order of the
learned Single Judge as by the said order of the learned Single Judge the
auction sale in favour of respondent no.3 was liable to be set aside if the
remanded proceedings under Rule by were successful. Both these writ appeals
were heard together by a Division Bench of the Karnataka High Court consisting
of S.P. Bharucha, CJ (as he then was) and Justice Shivraj Patil. The Division
Bench of the High Court came to the conclusion that the appellant`s application
under Rule 60 was not maintainable and he had no locus standi to file such an
application. Consequently the writ appeals were allowed and the writ petition
was dismissed with the result that the order of the Tax Recovery Officer dated
20th April 1988 and the further order of the Tax Recovery Commissioner dated
13th June 1988 came to be confirmed. Aggrieved by the common order of the
Division Bench of the high Court in the aforesaid two writ appeals two Special
Leave petitions were moved in this Court initially by two petitioners. The
first petitioner was Y.S. Surendra, the general Power of Attorney holder of the
defaulter and the present appellant was petitioner no.2. But during the
proceedings at notice stage the original petitioner no.1, the Power of Attorney
holder of the defaulter , Y.S. Surendra withdrew from contest with the result
that original petitioner no.2 remained the solitary petitioner in both the S.L.Ps
and has now pursued the present two appeals as the sole appellant.
Learned
senior counsel, Shri P P. Rao, for the appellant submitted that the Division
Bench of the High Court arred in taking the view that the appellant`s
application under Rule 60 of Second Schedule to the Income Tax Act was not
maintainable. That his application was backed up by the authority letter
entitling him to deposit the tax amount on behalf of the defaulter and that
authority letter was duly signed by the Power of Attorney holder of the
defaulter and that application was moved within thirty days of the auction
sale. It was, therefore, perfectly maintainable and it was too much to contend
that the defaulter cannot be the amount deposited through anyone much less
through the appellant who had interest in the property ad his suit for specific
performance was not only pending on the date of the auction sale but had got
decreed by consent on the very next day of moving such application. Shri P.P. Rao
submitted that the application was moved on 12th April 1986 and the suit in favour
of the appellant was decreed by consent of parties on the day on which the Tax
Recovery Officer rejected the appellant`s application he was already having the
full title in this property as successor-in- interest of the defaulter. It was
vehemently submitted that even assuming it is held that the defaulter through
his Power of Attorney holder had not filed a separate application under Rule 60
and had merely supported the application of the appellant even then as per the
said Rule the appellant had sufficient locus standi as he was interested in the
property which was subject-matter of the auction sale and that Revenue was only
concerned with its tax dues. Once the deposit fully met the said claim of the
Revenue it could not insist on such a technicality that the appellant`s
application was not maintainable the auction purchaser respondent no.3 who did
not get any better right by the auction in his favour which was liable to be
set aside on payment of tax within thirty days of the auction by the defaulter
or by any of his agents. In support of this contention strong reliance of the Kerala
High Court in the case of H. Rajgopal v. Secretary state Transport Authority, Trivandrum
and others (1978) 115 I.T.R. 364.
On the
other hand learned counsel for the Revenue as well as learned senior counsel Shri
Salve for respondent no 3 auction purchaser vehemently contended that the
Division Bench of the High Court was perfectly justified in taking the View
that appellants application was not maintainable under Rule 60 of the Rules as
his alleged agreement to purchase the property was avoid from the inception as
the said agreement dated 20th November 1982 few in the face of statutory
prohibition engrafted by Rule 16 sub-rule (1) of the Rules in the Second
Schedule of the Income Tax Act. It was also submitted that once the defaulter's
property was attached on 11th
February 1988 as per
Rule 51 of the Rules the attachment related back to the date of service of
notice, that is, 3rd
September 1973 and,
therefore, the agreement itself became void. In any case according to Shri
Salve the application moved by the appellant could not have been entertained
and was rightly rejected by the Tax authorities as because of such an agreement
which was violative of provisions of Rule 16 sub-rule (1) and Rule 51 read with
Rule 48 the appellant could not be said to be a person having any legal
interest in the property put to auction. That such an interest must be of a
person who had required some legal right or interest in the property prior to
the issuance of notice under Rule 2 of the Second Schedule and would not cover
a person whose transaction with the defaulter was within the sweep of the prohibition
of Rule 16 sub-rule (1) and Rule 51 read with Rule 48 of the Rules. In
Rejoinder learned senior counsel Shri Rao for the appellant submitted that the
application moved by the appellant could not be said to be by an unauthorised
person or a stranger to the property as he was having sufficient legal interest
in the property and his agreement was not void at initio but was subject of the
superior right of recovery of the tax by the Revenue and once that was assured
by the appellant by depositing the entire amount with interest and costs the
Revenue could not contend that it would still insist on going ahead with the
auction and getting it confirmed. That the appellant had moved application
under Rule 60 within the permissible limit of thirty days from the date of
auction.
In the
light of the aforesaid rival contentions we now proceed to deal with the
question posed for our consideration. Rule 60 of the Rules in the Second
Schedule to the Income Tax Act reads as under:
"60
(1) Where immovable property has been sold in execution of a certificate, the
defaulter, or any person whose interests are affected by the sale may at any
time within thirty days from the date of the sale, apply to the Tax Recovery
Officer to set aside the sale, on his depositing- (a) the amount specified in
the proclamation of sale as that for the recovery of which the sale was
ordered. with interest thereon at the rate of fifteen per cent per annum,
calculated from the date of the proclamation of sale to the date when the
deposit is made; and (b) for payment to the purchaser, as penalty, a sum equal
to five per cent of the purchase money, but not less than one rupee.
(2)
Where a person makes an application under rule 61 for setting aside the sale of
his immovable property, he shall not, unless he withdraws that application, be
entitled to make or prosecute an application under this rule." It is no
doubt true that original defaulter Shri Y.S. Devendra Murthy whose property was
put to auction had sufficient locus standing to move an application under Rule
60 within thirty days of the sale far getting it set aside on his depositing
the requisite amount as laid down by the said provision and his general Power
of Attorney holder could also legitimately contend that he had locus standi to
move such an application on behalf of the defaulter. However for reasons best
known to him he had not done so. It is not the case of the appellant that Shri
Y.S. Devendra Murthy or his Power of Attorney holder Shri Y.S. Surendra had
moved such an application. On the contrary his consistent case is that he
himself had moved such an application but he was supported by the authority
given by the Power of Attorney holder of Y.S. Devendra Murthy to deposit the
amount of tax arrears, Shri P.P. Rao, learned senior counsel for the appellant
was right when he contended that once an appropriate application is moved by
the defaulter or his Power of Attorney holder under Rule 60, the further
question as to from which source he gets money for being deposited or through
whom be gets the money deposited would pale into insignificance and that even a
peon of the defaulter can also carry out the ministerial act of actually
depositing the money on his behalf. But unfortunately for the appellant such is
not the case here. When we run to the application dated 12th April 1988 moved
by the appellant under Rule 60 it becomes at once clear that it was not the
defaulter or his Power of Attorney holder who was moving this application but
it was only the appellant who was armed with an agreement to purchase the
property put to auction who was moving this application and the moneys were
being deposited by him on his own behalf and for which action he had got
authority from the Power of Attorney holder of the defaulter. The following
pertinent recitals in the application make this position clear:
"I
am the prospective purchaser of the properties bearing Nos.20/1,2,3 and 21. situated
at Byaderahalli village, Viswaneedam Post, Bangalore-560 091, and Y.S. Devendra
Murthy has executed an agreement in this behalf agreeing to sell the
properties. I have filed the suit for specific performance of the contract to
enforce the said agreement in O.S.No.5/1984 on the file of the Additional Civil
Judge, Bangalore.
I have
paid the amount also in advance. In the meantime, your Hon`ble Authority was
pleased to hold auction on 14.3.1988 in respect of arrears due in respect of
Sri Y.S. Devendra Murthy. Still there is time to pay the amount by the said
Y.S. Devendra Murthy. As I am having right and interest over the property that
has been auctioned. I am ready and willing to pay the amount in full. To this
effect. Sri Y.S. Surendra the brother and the Power of Attorney Holder of Sri
Y.S. Devendra Murthy has authorised in to pay the amount. The said authorisation
letter is enclosed herewith.
Accordingly,
I am prepared to pay the amount that your Hon`ble Authority is entitled to
recover from Y.S. Devendra murthy. The amount detailed below may kindly be
accepted and the sale may kindly be set aside." In the prayer clause of the
said application it has been stated that above application is filed under Rule
60 of Schedule II of Income Tax Act, 1961 and the sale be set aside by
accepting the amount deposited by him. It is of course. true as contended by
learned senior counsel Shri Rao for the appellant that along with this
application he also annexed the authority letter given to him by the Power of
Attorney holder of the defaulter. He invited our attention to the said letter
annexed to the appellant's application under Rule 60. The said letter is
addressed to the Income Tax Commissioner by the Power of Attorney holder of the
defaulter Shri Y.S. Devendra Murthy. by the said letter the Power of Attorney
holder has informed the Income Tax Commissioner that he was prepared to pay the
amount that was due to his brother as his Power of Attorney holder and in this
behalf he had authorised K. Basavarajappa, plaintiff in Original Suit No.5 of
l984 on the file of Additional Civil Judge Bangalore (the appellant herein), to
pay the amount.
Now it
becomes clear that this letter addressed to the Income Tax Commissioner, Third Circle. Bangalore, could by no stretch of
imagination be considered to be an application under Rule 60, moved by the
defaulter or his Power of Attorney holder Shri Y.S. Surendra as such an
application has to be moved before the Tax Recovery Officer who has conducted
the auction sale with the prayer to get it set aside. That letter is merely an
intimation to the Income Tax Commissioner that he had authorised the appellant,
plaintiff of the suit, to make payment on behalf of his defaulter brother. Such
a letter. therefore. could not constitute an appropriate application under Rule
60 by the defaulter or his Power of Attorney holder for getting the section
sale set aside. So for as the appellant is concerned he no doubt moved that
application under Rule 60. But his application was moved on the basis that he
was already filed a civil suit for specific performance of his agreement to
purchase the suit property which was subject matter of auction. Thus he was
putting forward his own claim as prospective purchaser of the property. On the
date of the application he was not armed with any decree granting specific
performance of the agreement. We also find considerable substance in the submission
of Shri Salve learned senior counsel for the auction purchaser that when
equities are to be balanced between the two rival claimants, namely, the
prospective purchaser of the auctioned property under an agreement to set on
take one hand and the auction purchaser who had purchased the property in the
tax recovery proceedings on the other, it has to be seen further the appellant
could claim any legal interest and even a preferential interest in the property
which would entitle him to get the auction sale set aside. In this connection
Rule 16(2) on which strong reliance was placed by Shri Salve, is found clearly
to have hit the said agreement in favour of the appellant. To recapitulate,
notice under Rule 2 of the Second Schedule of the Income Tax Act was issued to
the defaulter on and September 1973. It may be that the attachment might have
taken place years afterwards but on 20th November 1982 when the defaulter
agreed to sell off his property to be appellant he totally bypassed the
requirement of Rule 16(2) which lays down that where a notice has be served on
the defaulter under Rule 2 the defaulter or his representative- in-interest
shall not be competent to mortgage. charge, lease or otherwise deal with any
property belonging to him except with the permission of the Tax Recovery
Officer, nor shall any civil court issue any process against such property in
execution of a decree for the payment of money.
By
entering into such an agreement to sell his property the defaulter had clearly
committed breach of Rule 16 and had bypassed the procedure laid down therein
for getting permission of the Tax Recovery Officer. In this connection Shri
P.P. Rao, learned senior counsel for the appellant was right when he contended
that such dealing with the property by the defaulter was not absolutely
prohibited but it was subject to the permission of the Tax Recovery Officer
while under sub-rule (2) of Rule 16 once attachment has been made under this
sub-rule any private transfer or delivery of the property attached or any
interest therein and any payment to the default of any debt, dividend or other
moneys contrary to such attachment, shall be void as against all claims
enforceable under the attachment. However this does not improve the situation
for the appellant for the simple reason that once attachment was levied on 11th February 1988 by virtue of Rule 51 it related
back to the date of the notice. that is, 3rd September 1973 and the appellant's agreement was
in between. It was contended by Shri P.P. Rao relying on the judgment of the Kerala
High Court in the case of M. Rajgopal (supra) that all that Revenue was
concerned with was security of its dues and consequently even though any
transaction which was hit by the provisions of Rules 16(1) and (2) the parties
to such transaction would have sufficient interest to move an application under
Rule 60 for setting aside the auction sale on offer to deposit full tax dues.
It is not possible to countenance this submission. If a party with open eyes
bypasses the statutory requirement of Rule 16(1) and gets an agreement to sell
executed by the defaulter, it cannot on the basis of such an agreement claim to
get the auction sale of defaulter`s property set aside by depositing the amount
after the property is put to auction for recovering the tax dues of the
department. It would amount to circumventing statutory provisions of rule 16(1)
and (2) read with Rule 51 and 48 of the Rules. It must, therefore, be held as
rightly submitted by Shri Salve, learned senior counsel for respondent no.3
that the appellant had no locus standi to move the application dated 12th April
1988 for getting the auction sale set aside. It is also to be noted that he had
no legal interest in the said property on the date of the application. It is
axiomatic that mere agreement to sell creates no legal interest or right in the
property which is the subject- matter of the agreement. In this connection a
Division Bench of the Karnataka High Count in D.V. Satyanarayana & Ors. v. Tax
Recovery Officer & Ors. (1992) 197 I.T.R 407 has taken the view that a
person who had obtained an agreement to sell which is hit by Rule 16 of the
Second Schedule to the Income Tax Act cannot make an application under Rule 61
for setting aside the sale as a person holding interest in the property.
On the
scheme of the Rules aforesaid this view represents the correct legal position.
On the same analogy such an agreement holder cannot equally apply under Rule 60
in his own right to get such auction sale set aside. The decision of the
learned Senior Judge of the Kerala High court heavily relied upon by learned
senior counsel for the appellant is of no assistance to him for the simple
reason to in the case The court was not concerned with any attachment following
the notice under Rule 2 of Schedule II to the Income Tax Act. The Court was
concerned with the short question whether the Tax Recovery Officer could issue
any notice to the transferee from the defaulter who had received notice under
Rule 2 and whether such a Power few from Rule 16 sub-rule (1). It is no doubt
true that it has been observed that there would be time lag between the service
of notice and attachment of property and such time lag was fairly long since
the Revenue might take time to ascertain the properties the defaulter is possessed
of. And because of Rule 51 any attachment of immovable property is made
operative from the date of service upon the defaulter to pay the arrears. The
question in the present case is entirely different. By mere agreement to sell
the appellant got no interest in the property put to auction to enable him to
apply for setting aside such auction under Rule 60 and especially when his
transaction was hit by Rule 16(1) read with Rules 51 and 48. Consequently he
could not be said to be having any legal interest to entitle him to move such
an application. Consequently no fault could be found with the decision of the
Division Bench of the High Court rejecting the entitlement of the appellant to
move such an application. It is, however, pertinent to note that though
originally the Power of Attorney holder of the defaulter was also a party to
these proceedings as petitioner no.l, pending these proceedings he had
withdrawn from these proceedings and he has acquiesced in the order of the High
Court rejecting the appellant's claim for being entitled to move such an
application, The order of the High Court qua the defaulter and his Power of
Attorney holder has become final. Therefore, as on date the appellant is not
supported by the defaulter or his Power of Attorney holder either. He has to
swim or sink on his own. Under these circumstances, therefore, the appellant
must be held to be devoid of any locus standi for moving an application under
Rule 60 of the Rules for setting aside this auction sales.
In the
result these appeals fail and are dismissed. In the facts and circumstances of
the case to there will be no order as to costs.
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